Tag: review

[amazon text=Shoe Dog: A Memoir by the Creator of Nike&asin=1501135910]

by Phil Knight, published 2016

What can we learn from business books, especially business biographies?

I used to laugh about this with a friend a considerable amount– all these dopey books about businesses, business men and business secrets, written by ghost writers and know-nothing journalists (hack writers), developed for and marketed to mass audiences who want an entertaining dream and not an edifying edifice to stare at imponderably.

We would be amazed at how absent these books were of any meaningful details, in fact, precisely the meaningful details necessary to actually understand what was going on and “how’deedodat?” It was like some kind of conspiracy of incompetent stupidity, to write books about business without margins, without tax rates, without rates of return on capital, without the capital structure outlined and revisited periodically as an enterprise grew, without definitions of risk and explanations of strategy.

Instead, lists of names, dates, places. Stylized depictions of tragedy and success. Cliched, retrospective business wisdom, as if the hustler-entrepreneur thought in any terms other than pure, maddening survival or unbridled, sociopathic dominance of everyone around him. Overlooking special revenue or R&D relationships with governments that were critical to a firm’s mastery of its market or early survival, or ignoring impolitic questions of how the founder avoided getting swept up in the local social conflagration du jour and being drafted out of existence.

To this mish-mash of storytelling sins this book adds a new one, anachronistic language. Somehow, Nike/Blue Ribbon was a “startup” before startups in the 1960s (and even into the 1970s, when it had been around for almost a decade… just getting going, really!) and one of the guiding philosophies of Knight and his “Buttface” crew (more on this in a bit) was to “fail fast”, nearly five decades before the software development revolution convinced the business world that iterative testing and quick trial to failure was the right way for all businesses to grow and not just a specialized niche that could essentially emulate A/B variants of its product or service offering at no cost or risk with the simple push of a button. But yeah, the shoe makers were doing that back when Vietnam was a thing.

That is why I read “Shoe Dog” with skepticism and found myself lusting after a critical beatdown as I turned the pages. A 25 year-old Phil Knight travels to Japan and secures a distributorship for a top Japanese athletic shoe, quite by chance and without any explanation of how he surmounted the language barrier in post-war Japan, then proceeds to tour the globe for four months by himself as some kind of backpacker-type tourist while his order samples, presumably, sit and wait for him the whole time? This is the beginnings of what would become Nike. And it went just like that.

Yeah, right.

The book is full of these glaring contradictions. Knight wanted to avoid the standard, stultifying corporate life, so he built a massive corporation. He believed in playing it straight as he advised his Eagle Scout nominees, so he lied to his financiers and production partners to grow his business. He never had enough cash to keep the bank happy and grow the business organically, so he bought himself a nice home and took the team on bi-annual corporate retreats to luxurious places (the book suddenly introduces this information about 12 years into the company’s history, where it is also revealed that they endearingly refer to one another as “buttfaces”, somehow demonstrating their open and transparent corporate culture). His co-founder fools him into giving majority control of the enterprise at the time of founding, then gives him 2/3rds of his share when trying to retire without fuss or challenge.

What “Shoe Dog” taught me, then, is that I’ve been naive to think there is anything esoteric one can learn from business books like this. It is my mistake for coming to a mass market piece of media and expecting to hear an honest telling, or even an interesting one. These books are written to entertain, glorify the egos of those who they are written about or nominally by, and perhaps even to some extent to distract, delude or otherwise throw off of the scent the would-be competitors who read them.

Reading between the lines, Knight was an alcoholic. He was clearly unscrupulous and at times cruel in his dealings with others. He did not spend the time with his family that they wanted from him. He lied, consciously, to his business partners and financiers. And he sued and counter-sued to stay in business or gain advantage. He did some other stuff, too, but these are the kinds of things that seem to set people apart, alongside luck. Some people play by the rules, either legally or their own conscience or both, and some people find ways to stretch these factors or simply break them without regret. Those people go on to be billionaires. And they have an incentive to lie about what they did and how they did it because after all, lying is what got them there in the first place.

You will never know how a business was really built by reading a book about it. And you would probably never find out even if you were a friend of the founder. You may not even be clear on what happened if you were inside the company itself. It’s too complicated and there are too many human factors involved that lend themselves to obfuscating the truth, if it can even be remembered.

One thing I learned from “Shoe Dog” is it’s my own fault if I keep reading this stuff and find myself frustrated at being anything but entertained.

[amazon text=The Bully Pulpit: Theodore Roosevelt, William Howard Taft and the Golden Age of Journalism&asin=1416547878]

by Doris Kearns Goodwin, published 2013

I picked up this title for two reasons. The first reason was to try to explore the phenomenon of “fake news” and the mainstream media’s war on Donald Trump’s presidency (and vice versa), to better understand the modern concept of the official press as an important check on government/regime power. The second reason was because at (now) 2,024 reviews on Amazon with an average 4.5-stars, this book seemed to promise it’d be a great, and long at 700+ pages of narrative text, story and I was looking for a great story, something that, whatever I thought of the point being argued, at least proved to be interesting and artfully constructed.

On the second point, I find myself frustrated. The research that went into this book is clearly exhaustive– the author speaks almost as much through verbatim quotes from primary source documents of the period (journal entries, private correspondence, public speeches, newspaper articles and editorials, memoirs, etc.) as she does in her own voice. This lends itself to creepy quirks of the book, such as the preponderance of quotes in which Theodore Roosevelt is found explaining himself in confidence via correspondence with Massachusetts Senator Henry Cabot Lodge, a character whose relationship with Roosevelt is never formally introduced or explained! It kind of makes Teddy seem like a tool of some higher, shadowy powers. Why was he constantly justifying himself to another politician when the author never bothered to tell us when and how they met?

But this doesn’t seem to make for a great story. The narrative is rather breathless and sycophantic in tone. Teddy, a progressive openly-hidden amongst Republican ranks, is one of the good guys, he never gives up and, progressivism being the inevitable enlightened state of the universe toward which historical events are constantly moving us all, he of course never meets any real resistance along the way and always wins in the end. And this is a good thing. We never see the author questioning him, catching him in contradictions (though there are many for the alert reader!) or asking how it is that this One, Good Man managed to succeed in a wholly corrupt system and reform it despite the various Interests who had so much at stake in stopping him.

For a critic of progressivism, there is no profundity to consider; for the advocate, no value in confirming what is already known. The story is boring.

As for the topic of “fake news” and watchdog journalism, that must’ve developed at some other time period. We learn again and again of how Roosevelt took various progressive journalists of the era into his confidence and made friends of them, and them of him, with many ebullient feelings being shared all around. We learn of his unique talent for cultivating relationships with these journalists who then heralded him and his policies for public consumption, and we also come to understand the important value this access represented to people who essentially are merchants of information those with access frequently come by. In some scenes, we see them conspiring so closely that it almost seems that the journalists are formulating policy, and the politician is writing the story.

In other words, we see a symbiotic relationship that serves power. Where’s the watchdog here?

One thing I wondered as I read this book was, “Was progressivism truly inevitable?” It’s hard to see how it could’ve been stopped, or what would’ve existed that was much different from it if it had been. Roosevelt’s insidious support for what every critic at the time could quite obviously see was socialism, from within the Republican party, which according to repeated insistence from the text had a stranglehold over the entire government, calls to mind the cliche, “With friends like these, who needs enemies?” It seems that there was a competitive advantage in politics in moving further and further to the left, no matter what party you came from, and the investigative journalists of the era (such as the evil Lincoln Steffens, who spent many years becoming “educated” in Europe about Marxism on his businessman father’s nickel) were only too happy to assist in readying the public for this ideological assault. When you read the accounts of the period of union workers intimidating “scab” worker families (women and kids), beating strike-breaking workers and even dynamiting non-union workers in public places, it kind of sounds like terrorism, something that seems like it would be a hard sell to good-hearted middle class Americans.

Yet, that is the side of history that won, and guys like Roosevelt and the investigative journalists helped make it happen.

It seems like it’s worth not forgetting that when listening to the media today tell us the important role it plays in preventing democracy from dying in darkness while it does the bidding of the Deep State.

[amazon text=The Snowball: Warren Buffett and the Business of Life&asin=0553384619]

by Alice Schroeder, published 2008, 2009 (condensed and updated)

This is my second reading of The Snowball. I enjoyed it almost as much as the first, five years ago, and definitely took away different things from this reading than I did last time. At that time, I was just finishing my “personal MBA” deep-dive into value investing and was interested in Schroeder’s Buffett bio mainly for the information and insight it would yield into Buffett’s approach and track record as an investor. I was surprised to come away from that reading realizing that the book was a moral parable in the form of a man’s life (an incredibly successful, well-known and near-worshipped man) and my second journey through the book was more focused on the question “How should I think about living my life?” than the question “How should I think about investing?”

I found the book most exciting to read and most interesting personally in the exploration of Buffett’s origins and the detailed narrative about the first twenty years of the partnerships that proceeded his investment in Berkshire Hathaway. As the story wore on and it became more about managing what he had and dealing with the consequences of choices wrought long ago, I found myself losing interest, particularly as the Salomon and Long-Term Capital Management sagas carried on for a mind-numbing fifty-plus pages in total.

Buffett’s childhood was far more unusual than I cared to notice in my first reading. He was obsessed with business, investing and the impact of statistics in life not just from a young age, but in ways that were extraordinary even for someone to be described as “doing X from a young age” would imply by itself. Obsessed is not a word I use lightly here. The young Buffett was probably an odd creature to be around, even for people who loved him or found him interesting or were of unusual talent and ability themselves. This seems confirmed in later years when so many people familiar with him describe feeling exhausted after spending just a few hours with him. It helped me to realize how unfair and pointless trying to compare yourself to a person like Buffett is.

When asked by Bill Gates, Sr., at a dinner what single word they’d use to describe the outcome of their life and their success, Buffett said, “Focus.” As Schroeder describes in many places in the book, and especially at length in the final chapter, “focus” means something completely different when Buffett says it versus anyone of lesser ability and different personality. When Buffett says “focus” he means “to the exclusion of all else, with relentless, all-consuming energy, without tiring or being distracted.” There is no balance working behind the scenes. He gave up a lot of “normal” things most other people would insist on or desire in distinction to that which they were focused on, not as a sacrifice but as an inevitability of his personality.

The most obvious and tragic is his relationship with his family and his relationship with himself. Most other people who are driven towards success in their field and the monetary rewards that typically come with it offer up the excuse of their family as their motivation, honestly or not. This wasn’t the case for Buffett, and achieving supremacy in his profession and in his personal net worth really didn’t do anything to enhance his relationship with his family or the way he cared for them. It is indicated on numerous occasions what kind of tradeoff he would’ve had to make to be more involved with his family, and he never did it. It’s an excellent reminder for someone who sees themselves as driven to achieve that these tradeoffs are real and accepting a “lower rate of return” in one’s efforts is a necessary (and happy?) price to pay to maintain a relationship with one’s family, which itself is valuable.

Buffett’s relationship with himself is also instructive in this regard. Many people wonder how money can’t solve most problems, and why people who are super wealthy continue to eat poorly, exercise infrequently and maintain the same limited psychological state and insecurities they possessed before they achieved glory. The answer again is simple– in the drive toward massive wealth, things get set aside and often it is the improvement of the self as a holistic unit that is set aside first in order to claim excess in one aspect.

Of course, we can’t expect Buffett to be perfect. Nobody is, and the point of mentioning this isn’t to point out the man’s flaws, but to explain them. You can’t have Buffett and have these issues resolved to everyone’s satisfaction. They come with the territory. If you want to be “focused” like Buffett, plan on neglecting your family and yourself, quite a bit. That’s only a judgment if you think those things are objectively more important than wealth or self-actualization in the area of generating wealth. That’s not really a judgment I want to make here and I think it misses the point.

Yet, Buffett’s flaws make for a fascinating lesson in a different way. Though Buffett was unusual, and exceptional, and completely driven toward a single-minded purpose from a young age, the path was far from certain that he would need to tread to get to wherever it was that he would end up going. It’s easy to sit here today reading a book published almost ten years ago, recounting events that unfolded over the past eighty, and see what was inevitable as inevitable. But Buffett made mistakes. Many of them, along the way. That’s what’s truly remarkable, that he made mistakes and still arrived where he did. It’s a good salve for a person carrying around the perfectionist fallacy. Give it a rest and get going, you can make some mistakes and still end up alright if Buffett is any example.

I love reading stories like this, stories of flawed people of unusual ability who managed to achieve something heroic even if their life wasn’t truly ideal. I love knowing it can be done. I love knowing what the pitfalls and the tradeoffs are, so I can be mindful of them myself. I love the way I can give myself permission to not achieve what they achieved (in kind or in magnitude) having the benefit of hindsight to see what it truly took that I can’t give, or won’t.

But most of all, I just love watching someone create something from nothing. That creative energy is uniquely human and what I admire most about our species and this little project called “civilization” that we’re all tinkering away on. The Snowball is not as great an investment manual as I originally thought it was (for that, I’d recommend Buffett’s BRK shareholder letters, along with or after reading Graham’s Security Analysis and The Intelligent Investor), but it is an epic moral profile and a captivating read overall because of it.

[amazon text=Grinding It Out: The Making of McDonald’s&asin=0312929870]

by Ray Kroc, with Robert Anderson, published 1992

Reading through the stories of great entrepreneurs, business people and politicians like Cornelius Vanderbilt or Warren Buffett, it is easy to find a sentiment much like this one from Ray Kroc:

Ethel [his wife] used to complain once in a while about about the amount of time I spent away from home working. Looking back on it now, I guess it was kind of unfair. But I was driven by ambition.

I find this sentiment remarkable for a few different reasons.

The first is how common it is. It seems to suggest that achieving “great things” in a particular field of enterprise is not possible without neglecting one’s family and other personal relationships in favor of the “productive” relationships and activities.

The second is how little awareness of this tradeoff many such people seem to possess, at least until they reach the end of their life and all their glory has already been gotten. Then, as they contemplate their state of affairs, either looking back on the empire they built or ruminating regretfully now that they are deposed (violently or voluntarily), they seem to re-evaluate how they spent their time and decide they came up short in considering family time less important than it should have been. They also seem to be either disconnected from the damage they do to their children and their psyches, or else try to evade such recognition– I think Ray Kroc mentioned his daughter all of two times in this 200 page telling, and while his daughter may not have been critical to the story of building McDonald’s, you’d think she would’ve provided enough value and motivation in Kroc’s life to merit more than a couple passing mentions!

The third is how excusable such high achievers seem to find their behavior to be in retrospect. “But…” is a permission word. It negates what comes before and offers cover. Yes, Ray Kroc was unfair, but… It suggests a different moral framework for studying life or a particular circumstance, one in which the rules don’t really apply and the ends justify the means.

The fourth is what a temptation these great projects must’ve provided to these people, to ignore their family, their health or any number of other values. If I was a successful paper cup salesman but stumbled upon the idea of McDonald’s myself, could I have resisted the temptation to build it and in the process knowingly give up my family, friends, physical well-being, etc.? It is perhaps easy to sit in judgment of another person’s efforts and decisions when the attraction of my own responsibilities is relatively less compelling. It’s easy to go home to my family at the end of the day as they typically offer me more interest and excitement. But would that be the case if millions of dollars and a global business organization hung in the balance? That I don’t know for sure, and perhaps you can’t know until you’re tempted with it.

But that leads to the fifth point, which is to consider whether a story like Kroc’s and McDonald’s could be told any other way. What if in the first 27 pages of the story of this business the quote above was not to be found, nor anywhere in the 173+ pages that followed? What if Kroc didn’t get divorced (twice), didn’t have a string of health issues along the way, came home and kissed his wife and daughter on the forehead five nights a week and spent most of each month at home and around town rather than around the country? What choices would’ve needed to be made differently to support that outcome, and how would the company look different either internally or competitively if that had been the case? How big would Berkshire Hathaway be if Buffett had raised his own children and loved his first wife more considerately instead of reading so many damn books and annual reports?

To ask may be to answer, but it’s frightening (hopeful?) to think otherwise.

Besides neglecting important obligations and personal considerations, what else do stories like these seem to tell us about those who achieve outsize success?

Incredible stamina seems to be part of it. They don’t just work hard, they work all the time. But again, it’s hard to know if this is part of the person, part of the responsibility and opportunity, or both. How would a person not work hard and often at something they didn’t love to the point they were mesmerized by it? Enthralled is a good way to describe the state of mind in relation to the idea of the thing being pursued here.

Also, simplicity. Maybe it’s the bad ghostwriting designed to break the story down for a lowbrow audience but the way these people talk about what it is they did, they rarely come across as great geniuses, though they’re often wits (Buffett is a notable exception here, and Vanderbilt was clearly “sharp”, a word for cunning back then, though it wasn’t clear he was necessarily “intelligent”, while it was clear he was no buffoon). The grand strategy and complexity is often seen in hindsight, knowing how the story ends and having years and years to tell it and thus accumulate various trappings which may or may not be integral to the success. In Kroc’s own words, it was all about Quality, Service, Cleanliness and Value and then spreading it across the land. Their financing was complicated, but it’s not clear it needed to be, especially if the company was less levered and less insistent on growing as fast as it did. Being focused seems obvious, yet important enough to mention it.

Where does that leave me? If there’s a way to build a legacy that doesn’t involve neglecting one’s family and health, perhaps by being more patient, moving more slowly or being less obsessed about the outcome, that is the kind of legacy I want to build. And I have to wonder what kind of personal insecurity or individual idiosyncrasy or whatever it is, that I seem not to have, that would not allow a person to make that choice given the alternative.

But if the only way to make things great is to trash some other part of your life and leave a smoking crater behind, a crater that’s especially painful in the vulnerability of old age, then I guess I better prepare myself mentally for more humble achievements. I’m just not interested in those kinds of tradeoffs and I don’t understand how such achievements could be satisfying without a family to enjoy them with and the sound mind and body necessary to experience it all.

What would the world of Big Business look like if it was owned and controlled by rational, intelligent capital allocators?

Before we try answering that question by reviewing a major episode in the business career of Lee Iacocca, let’s take a step back and talk a little bit about that man’s history before he arrived on the stage at that moment.

Iacocca was born to Italian immigrants in the early 1920’s. He lived through the Great Depression as a child and had the good fortune to develop a case of rheumatic fever in his adolescence. In that era, rheumatic fever could be and often was fatal, and frequently led to chronic health problems even after the infection was beat. He was lucky to get it because it resulted in him receiving a medical deferral during WW2. Instead of being blown up over some city in Germany like many of his peers, he worked hard on his studies in high school and college and had the benefit of such small class sizes during his industrial engineering classes at Lehigh University that he practically received a private tutorial for most of his four years.

After graduating from Lehigh, he got an offer to join the Ford Motor Company as one of 50 hand-picked students, but decided to pursue a masters at Princeton after receiving a fellowship. His luck continued when he got invited back to the company upon completing his studies despite the company forgetting it had promised to hold his spot two years earlier and then decided to hire him again anyway even though all the spots were filled.

Despite being hired on as an engineer, Iacocca quickly grew bored with his duties and petitioned for a role in field sales, which he was granted. His big break in the company came a few years later, not due to his engineering prowess but because of a slick local marketing campaign, “56 for ’56”, which was soon adopted nationally and to which the company attributed a big boost in sales. He was promoted incessantly, all the way up to president of the company in 1970, on the heels of a string of other successful promotions including the introduction of the Ford Mustang, Pinto, Escort and Fiesta, the Lincoln Continental Mark III and the revival of the Mercury brand and Cougar car.

If you’re reading this review anytime after 2017 when it was first published, you’re a bit puzzled at this point and don’t understand why you should be impressed with Iacocca. That’s because you have the benefit of hindsight and know how the story ends for these particular product lines and for the American auto industry in general. You also can’t appreciate how stupid sales and finance gimmicks like “56 for ’56” could not only meaningfully move the needle in a massive company’s sales, but could be placed like a laurel wreath on the head of one young man and allow him to propel himself up the ladder all the way to the company presidency. All I can say is it was a different time and America was a different place, and all the horrible stereotypes of the simplicity and innocence of the era seem, sadly, to have been true.

There’s one more bit of the story worth mentioning before we try answering our question. In being nationally-recognized initially, Iacocca was in practice being recognized by Henry Ford II himself, and it was Henry Ford II’s favoritism which allowed him to keep ascending the ranks. Later, like all good auto manufacturers seemingly must do when they find a talented executive with a string of successes accumulating (see the Hyundai/Krafcik saga most recently), Iacocca ended up on Ford’s shitlist and after carrying out a secretive investigation and waging a war of company politics against him for three years aimed at getting him to resign, he finally fired him in 1978.

Rather than being incredibly thankful for the amazing luck he’d had so far in his life and the astounding speed with which he had climbed the corporate ladder due to this initial favoritism, Iacocca developed major sour grapes. His heart filled with hate and disgust and he let Ford’s personal failings as a man become his own. He couldn’t give up and move on with his life and instead signed on to be president of Chrysler, Ford’s 2nd tier competitor, in what he thought would be a major “fuck you!” to Hank the Deuce. Now, here is where the story gets interesting and how we might attempt to answer the question first posed by demonstrating the disaster that is the present state of affairs.

In a chapter called “The Shah Leaves Town”, Iacocca the newly appointed president of Chrysler finds himself in a seeming perfect storm. Already in trouble because of a dysfunctional, hyper-decentralized operating structure, non-existent enterprise-level financial controls, last place product quality, poor sales volume, a debt-heavy balance sheet and out of control expense structure, Chrysler meets the same shocking set of macro events that every other major global auto manufacturer had to contend with at the time period, as well as the US economy in general– the Shah of Iran is deposed, the price of gasoline skyrockets and a terrible recession takes ahold of the US economy.

In response to these circumstances which are truly beyond Chrysler’s control, Iacocca concludes he is forced to:

layoff thousands of plant employees and sales and administrative staff

sell off foreign divisions of the company that are deeply in the red

sell off the company’s valuable franchise real estate at fire sale prices (and later repurchase it at multiples of said prices)

sell off some of the company’s only profitable, “evergreen” divisions, such as its US military tank supplier, because “Chrysler was in the business of selling cars and trucks, not tanks” despite C&T losing millions annually and tanks being guaranteed a $50 million profit annually by the Department of Defense

ultimately, going hat in hand to the government begging for $1 billion in loan guarantees to avoid a Chapter 11 bankruptcy based on some whiny logic about “Free enterprise and survival of the fittest, except when my cock is on the chopping block” (paraphrasing)

The chapter is truly astounding in that it reads like a tell-all of a manager’s total incompetence in the face of adversity, doing all the wrong things for all the wrong reasons and still having the nerve to blame bad luck and the government as if the crisis was created in one day and not over a long period of time beforehand. Truly, considering the amazing string of good fortune that Iacocca had over his previous thirty year career with Ford and the jarring inability to think creatively when faced with a headwind, it begs a lot of questions about what of the success he and Ford experienced during his earlier tenure was due to their own genius versus random happenstance.

And it certainly begs a lot of questions about what the hell Chrysler’s board of directors was doing in the decades leading up to these freak events, while the company’s competitive position was eroding, its organization degrading and its risk growing to the point that a devastating calamity was all but inevitable.

That is what is so regretfully consistent about the way these episodes are depicted in books and in the press, whether we’re talking about the fate of one rundown company like Chrysler or the “sudden” onslaught of a national financial panic, like in 2008. To hear the people in charge tell the story, no one could’ve seen it coming and it was all someone else’s fault and due to a unique sequence of shocks that unfortunately all happened at once.

For people with no principles and no real understanding of complex events, such as major corporate failures requiring bailouts/government guarantees, or business cycle busts, these things are always surprising in magnitude and mystical in nature. But for people who read and think deeply about them and can trace the interplay of multiple phenomena over a long time series, another picture develops. Here, we can see that luck has little to do with what results beyond simply tipping over something that was already unbalanced. And actually, it is a series of poor decisions, often made in utter ignorance of what it is that is being decided for or against in each episode, that logically coalesce into a disaster masterpiece as fragility grows with the increasingly complexity of time.

If Iacocca was anything, he was a decent, hard-working salesman and marketer, a promoter, especially of himself. But he knew nothing of risk and how to manage it and gave little thought to managing a sound capital structure and the way all the operational pieces of the puzzle contributed to it, or didn’t– that’s probably why he was always referring to the accountants in the book as “bean counters.” This diminutive phrase for the people whose jobs are to provide an accurate state of the company’s financial health and system and thus allow rational capital allocation to take place in full light of the organization’s risks really tells you all you need to know about why things turned out as they did for Chrysler.

Although Iacocca can’t be blamed entirely for the mess he inherited at Chrysler, his response and strategy for fixing it certainly gives us a place to start in thinking about what not to do when master of a universe like this, and thus how a rational allocator of capital might do differently.

In the first place, a rational capital allocator would not rest on his laurels and allow good times, and especially boom times, to delude himself into thinking that all was well and no drastic improvements could be made in the business’s operations. In fact, this seems like the best time to consider making such decisions, because the company operates from a position of strength and thus will feel, and actually have, the maximum of alternative choices to make. A rational capital allocator would want to avoid at all costs finding themselves in a position where they are trying to decide which assets to dispose of, for example, while the clock is ticking on a debt bomb.

Second, a rational capital allocator would never fool themselves into thinking that the circumstances witnessed today were the consequence of recent events or decisions. Rather, he would look to the past, and further into the past the more complex and the larger in scale the operation in question is, for clues as to where the actual problem originates and therefore what the proper remedy might be.

Third, when faced with a crisis, a rational capital allocator would not rally around emotional identities such as “We’re a car and truck company at heart” but would instead contend with the logic of where profitability lies– if the only division making money is tanks, then it turns out you are in fact a “tank company”, in which case you better make haste in selling off and disposing of all non-tank related divisions, such as cars and trucks. The sub-section to the third point is that before it even got that bad, a rational capital allocator would’ve been asking questions like, “What does making tanks have to do with making cars and trucks, besides freak accidents of history?” and with no reasonable answer to be found, he would’ve worked to separate the capital and reporting structures of these activities long before the crisis struck.

Fourth, the rational capital allocator would realize that debt holders stand in direct opposition to equity holders and could easily set them aside given the right circumstances, and so he would be extremely hesitant to use debt in his capital structure, if at all. He’d also be a bit more eager to pile up cash rather than use it on silly, ego-driven things like acquiring an empire of assets in foreign markets just to be able to make the claim that he is operating a “globally diversified operation.”

Fifth, a rational capital allocator would try to qualify and quantify the major predictable threats to his model and not only manage his operations to them, but have anticipated his own response were such risks to actually manifest themselves. For example, if you run a major auto manufacturing enterprise, some big risks you might keep on the radar would be gas prices (affecting your demand), labor and steel prices (affecting your cost of production) and major geopolitical instability which might impact those primary risks (such as a major oil exporting country becoming politically unstable). Regime change is pretty frequent throughout history, and it’s not like there were no signs the Shah was unpopular in Iran prior to his departure. It should’ve been conceivable to major decision-makers like Iacocca that such events could take place and would have a negative impact on his operations.

Why, for the last 300 years, has “everything” been getting better and better in terms of just about any human outcome you can come up with? Human beings are getting better at exchanging ideas and thus generating new and better ideas. In addition, the total stock of life improving ideas humanity can build from is compounding at an increasing rate. The benefits of free exchange extend beyond the economic realm and into the philosophic, and then back again.

The author charts a surprising course through humanity’s shared hunter-gatherer history. He argues that it was economic trade which allowed the division of labor to develop, and the division of labor which allowed for the transition from hunter-gatherer subsistence living to agricultural subsistence, and from there to a compounding of capital and an increasing division of labor and economic specialization that allowed for mankind to finally break free of the Malthusian trap in many parts of the globe (and more every year).

In addition, he says we are never going back. The genie is out of the bottle and rather than the division of labor being fragile, it is far more robust than any social structure yet experienced and gets stronger the more specialized it becomes.

Because of this, and because when surveying history up to this point in the broadest terms possible there is evidence of things getting better and better for more and more people, not the opposite, the author concludes that the rational thing is to be an optimist and expect this trend to continue.

There are several convenient leaps of logic built off flimsy premises that would startle and upset an opponent of markets and industrialized societies, but there is such a preponderance of hard logic and even harder evidence that there isn’t enough here to tip over the apple cart. But the value of this book is less in its rhetorical force for free markets and industrial development and more in its sweeping survey of a number of seemingly unrelated historical data and economic phenomena into a coherent picture of hopefulness about humanity’s future. I found myself joyfully surprised by the idea that in the chicken-egg quandry of agriculture and trade, the author contends that trade came first and produced all the surplus we moderns have enjoyed since then.

Going “back to the land” or seeking out de-urbanized, atomized communities seem to be doomed to bring their proponents a lower standard of living overall, idealizing a past reality that never actually existed or rejecting the very thing (the division of labor) which is necessary to enjoying a desirable standard of living with modern securities and comforts.

[amazon text=Good Strategy/Bad Strategy: The Difference and Why It Matters&asin=0307886239]

by Richard Rumelt, published 2011, 2013

I recently came across GS/BS on an old blog I have been subscribed to for years. Being in the middle of some strategic planning within our own business, the find seemed timely so I moved the title to the top of my list and set aside “[amazon text=The Russian Revolution: A People’s Tragedy&asin=014024364X]” for completion at a later date. I am glad I did, although having now concluded the read I find I have a conflicted view of the book.

One reason I find myself interested in this book is it is in fact, interesting. I find myself thinking a lot, and thinking differently, about various strategic topics covered in the book as well as my own related challenges, which suggests the book has given me a valuable new framework. On the other hand, I thought the author did not define his terms in such a way that leaves me feeling confident he has created a solution to the problems he has identified with most approaches to strategy– it’s almost like he came up with an even sexier sounding way to think about strategy problems without addressing the concrete limitations of the approaches he has critiqued.

In my review rubric, a 5/5 is a “classic” book that not only can be read again and again, but should and likely will be, each reading offering new insights or appreciation of the human condition examined within. A 4/5, on the other hand, is not a “near classic” but rather just a “very good book” that is worthy of recommendation to others. A 3/5 is a book with some value, but is otherwise unremarkable. And we won’t waste or time rehashing the miserable 2/5 and 1/5 ratings. I am puzzled because I think I am going to end up re-reading this book, and most likely in a very short period of time after I’ve tried to digest and apply some of what I think I’ve just learned to my own strategic activities. That suggests it is a potential 5/5. But I don’t feel like I will enjoy this book more with each re-reading, especially because some of the case studies contained within will have grown very stale (many I have encountered in other reading materials and few of those had any new insights to glean this time around). And because of my concerns with the definitions and overall structure of the book, I am not even sure it is a 4/5. I went back and forth with a friend in a private message system about whether I thought he should read it or not, finally settling on “yes”, and I have recommended it to others since then. It’s definitely not a 3/5.

Since my mind is not made up about what this book is saying, I don’t have a concise review of its major ideas to offer at the moment. I might reflect and write another post if and when I do, likely after the suggested re-reading. For now, I am just going to collect all the passages I highlighted and see if anything obvious bubbles up into my consciousness as a result:

Strategy is about “discovering the critical factors in a situation and designing a way of coordinating and focusing actions to deal with those factors.”

A strategy that fails to define a variety of plausible and feasible immediate actions is missing a critical component.

Doing strategy is figuring out how to advance the organization’s interests.

The kernel of a strategy contains three elements: a diagnosis, a guiding policy and coherent action.

The most basic idea of strategy is the application of strength to weakness.

A hallmark of true expertise and insight is making a complex subject understandable.

If you fail to identify and analyze the obstacles, you don’t have a strategy.

A strategy is like a lever that magnifies force.

Strategic objectives should address a specific process or accomplishment.

Business competition is not just a battle of strength and wills; it is also a competition over insights and competencies.

To obtain higher performance, leaders must identify the critical obstacles to forward progress and then develop a coherent approach to overcoming them.

The need for true strategy work is episodic, not necessarily annual.

A good strategy defines a critical challenge.

Strategies focus resources, energy and attention on some objectives rather than others.

All analysis starts with the consideration of what may happen, including unwelcome events. I would not care to fly in an airplane designed by people who focused only on an image of a flying airplane and never considered modes of failure.

A great deal of strategy work is trying to figure out what is going on.

Slowing growth is a problem for Wall Street but is a natural stage in the development of any noncancerous entity.

A diagnosis is generally denoted by metaphor, analogy or reference to a diagnosis or framework that has already been accepted.

A guiding policy creates advantage by anticipating the actions and reactions of others, by reducing the complexity and ambiguity in the situation, by exploiting the leverage inherent in concentrating effort on a pivotal or decisive aspect of the situation, and by creating policies and actions that are coherent, each building on the other rather than cancelling one another out.

The coordination of action provides the most basic source of leverage or advantage available in strategy.

Anticipation simply means considering the habits, preferences, and policies of others as well as various inertias and constraints on change.

A master strategist is a designer.

The truth is that many companies, especially large complex companies, don’t really have strategies. At the core, strategy is about focus, and most complex organizations don’t focus their resources. Instead, they pursue multiple goals at once, not concentrating enough resources to produce a breakthrough in any one of them.

A competitive advantage is interesting when one has insights into ways to increase its value.

The first step in breaking organizational culture inertia is simplification.

To change the group’s norms, the alpha member must be replaced by someone who expresses different norms and values.

Planning and planting a garden is always more interesting and stimulating than weeding it, but without constant weeding and maintenance the pattern that defines a garden — the imposition of a special order on nature — fades away and disappears.

In a changing world, a good strategy must have an entrepreneurial component. That is, it must embody some ideas or insights into new combinations of resources for dealing with new risks and opportunities.

Making a list is a basic tool for overcoming our own cognitive limitations. The list itself counters forgetfulness. The act of making a list forces us to reflect on the relative urgency and importance of issues. And making a list of “things to do now” rather than “things to worry about” forces us to resolve concerns into actions.

When we do come up with an idea, we tend to spend most of our energy justifying it rather than questioning it.

A new alternative should flow from a reconsideration of the facts of the situation, and it should also address the weaknesses of any already developed alternatives. The creation of new, higher-quality alternatives requires that one try hard to “destroy” any existing alternatives, exposing their fault lines and internal contradictions.